Macro Morning

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MB Radio: Irresponsibility becomes the new black

By Chris Becker 

The positive start to the trading year soured on Friday night on the news of the US airstrike assassination of a top Iranian general, combined with a very disappointing ISM manufacturing print saw US stocks fall. US Treasury yields fell alongside the USDJPY pair as safe haven bids took hold, while both WTI and Brent crude prices spiked over 3% in the wake of what could be very explosive Middle East tension.

Looking at Asian share markets on Friday where the Shanghai Composite put in a scratch session, clsoing a few points off to 3086 points, but still well above the previously long held 3000 point resistance level. Meanwhile in Hong Kong, the Hang Seng Index retraced slightly to be down 0.3% to 28461 points after advancing earlier in the session. The daily chart shows how the previous resistance level at 28000 points is now a distant memory, but intraday price action is getting ahead of itself with no pressure anywhere near the high moving average until Friday’s session. This is a harbinger of a possible retracement:

Japanese share markets remain closed for the big holiday over the New Year break, and are likely to react poorly due to the epic rise in Yen and the Middle East tensions.   The daily chart of the Nikkei 225 shows how the breakout above the previously strong resistance level at 23500 points has proven too hard to sustain during the Santa Claus rally with 24000 points – the 2018 high – the real resistance level to beat when it reopens next week:

The ASX200 was the best in the region due to a much lower Aussie dollar, gaining some 0.6% to finish the first trading week at 6733 points. SPI futures however are down a handful of points and may even gap lower this morning in line with Wall Street. The daily chart is showing some support at the November lows which is the area to watch on any further retracement:

European markets have been unable to translate the lower Euro and Pound Sterling domestic currencies into sustainable risk on rallies with a mix of results on Friday night. The FTSE advanced while the CAC was stable, but the German DAX retraced all its previous gains to finish 1.2% lower to 13219 points. Daily support at 13000 or so is still the uncle point but price needs to get back above the previous resistance level at 13250 very soon:

Wall Street was shook up by the drone attack and fell back from its recent historic highs, with all three main bourses falling around 0.7 to 0.8% as a result. The daily chart of the S&P500 shows the intrasession volatility as it started higher, but ATR daily support is holding steady, with an uncle point at 3220 points still very firm going into the new year:

Currency markets are getting whiplash from the global macro events with Euro oscillated around the mid 1.11 level on Friday night as both German unemployment and CPI crept up unexpectedly. The union currency is locked in a cycle between the 1.10 and 1.12 levels as USD becomes dominant once more. I’m watch the extreme session lows at 1.1120 to come under pressure soon:

Even more volatility in the USDJPY pair which makes a new weekly lows as it breaks decidedly through the previous 108.30 level (lower black horizontal line). This is not a good indicator for domestic Japanese stocks nor continued risk assets overall:

The Australian dollar remain below the 70 handle after a wider selloff later in the week was forestalled by some buying support at the 69.30 level. Traders have a long time to wait for the February RBA meeting so the usual risk proxy events are pushing the Pacific Peso along:

Oil prices are no longer in consolidation phase with a 3-4% rise across the board on Friday on the US attacks on Iran, likely to be followed with more upside price action this week as WTI spiked above the $63 per barrel level. The weekly chart below puts the price pattern in context with the ability to price shock up to the 2018 high after recently matching the 2019 level. We could be in for a rough ride here:

Finally to gold, which continued its breakout on Friday to shoot up to the $1550USD per ounce level, capping off a beautfiul Santa Claus rally!  A melt up rally if there ever was one, with the ability to advance despite a much a stronger USD overnight means all short positions are being wiped out. Note how price is now matching the 2019 high and could gap even higher as a medium term rally in the new year firms:


Glossary of Acronyms and Technical Analysis Terms:

ATR: Average True Range – measures the degree of price volatility averaged over a time period

ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility

CCI:  Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)

Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement

FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)

BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe

DOE: US Department of Energy 

Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!

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